Section 269UE — Vesting of Property in Central Government

CHAPTER XX-C — PURCHASE BY CENTRAL GOVERNMENT OF IMMOVABLE PROPERTIES IN CERTAIN CASES OF TRANSFER

Section 269UE — Vesting of property in Central Government

Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise

Status: Historic / spent. Chapter XX-C was inserted by the Finance Act, 1986 and brought into force area-wise under section 269U; by section 269UP it does not apply to any transfer of immovable property effected on or after 1 July 2002. The pre-emptive-purchase machinery is therefore dormant. The section is reproduced and annotated in full for completeness of the Treatise.

Finance Act, 2026: No amendment. The Finance Act, 2026 does not touch any provision of Chapter XX-C (sections 269U to 269UP).

Mechanism: On a purchase order under section 269UD, the property vests in the Central Government in terms of the agreement for transfer; the transferor must deliver possession, and the section deals with existing tenancies/encumbrances and the consequences of the vesting.

Litigation profile: Litigated on the 'free from all encumbrances' language and the protection of bona fide tenants and encumbrancers in possession.

A. COMMENTARY

The vesting mechanism

Section 269UE is the conveyancing engine of the Chapter. Once a purchase order is made under section 269UD, the property vests in the Central Government, and the transferor (or anyone in possession) is required to surrender or deliver possession to the prescribed authority. The vesting is statutory — it does not require a registered conveyance — which is what makes the pre-emptive purchase self-executing.

'Free from all encumbrances' read down — C.B. Gautam

As originally enacted, the provision purported to vest the property in the Central Government 'free from all encumbrances'. In C.B. Gautam the Supreme Court found this could not stand: vesting that wiped out bona fide tenancies and encumbrances created before the agreement bore no rational nexus to the object of countering undervaluation and offended Article 14. The Court therefore read the provision down so as not to defeat bona fide lessees and encumbrancers in possession. The legislature responded (Finance Act, 1993) by substituting the offending words so that the property vests 'in terms of the agreement for transfer' — i.e. subject to whatever encumbrances the agreement itself recognised.

Possession and tenanted property

Where property was tenanted, the vesting and surrender-of-possession machinery had to accommodate the tenant's subsisting rights; the courts read the Chapter consistently with C.B. Gautam so that the State took the property in the same condition the buyer would have, not in some enhanced, encumbrance-free condition. Shatabadi Trading illustrates the working of the scheme where tenancy and possession were in issue and a purchase order did not ultimately survive.

Link to re-vesting

Vesting under section 269UE is conditional in substance: it is undone by section 269UH if the Central Government fails to tender or deposit the consideration in time. The two provisions must be read together — vesting carries with it the State's obligation to pay, failing which the property returns to the transferor.

B. STATUTORY TEXT (verbatim)

Reproduced verbatim from the Income-tax Act, 1961, as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no change to Chapter XX-C). Page-header/footer artefacts of the source PDF have been removed; wording, clause-lettering and punctuation are unaltered.

Vesting of property in Central Government.

269UE. (1) Where an order under sub-section (1) of section 269UD is made by the appropriate authority in respect of an immovable property referred to in sub-clause (i) of clause (d) of section 269UA, such property shall, on the date of such order, vest in the Central Government in terms of the agreement for transfer referred to in sub-section (1) of section 269UC :

Provided that where the appropriate authority, after giving an opportunity of being heard to the transferor, the transferee or other persons interested in the said property, under sub-section (1A) of section 269UD, is of the opinion that any encumbrance on the property or leasehold interest specified in the aforesaid agreement for transfer is so specified with a view to defeat the provisions of this Chapter, it may, by order, declare such encumbrance or leasehold interest to be void and thereupon the aforesaid property shall vest in the Central Government free from such encumbrance or leasehold interest.

(2) The transferor or any other person who may be in possession of the immovable property in respect of which an order under sub-section (1) of section 269UD is made, shall surrender or deliver possession thereof to the appropriate authority or any other person duly authorised by the appropriate authority in this behalf within fifteen days of the service of such order on him :

Provided that the provisions of this sub-section and sub-sections (3) and (4) shall not apply where the person in possession of the immovable property, in respect of which an order under sub-section (1) of section 269UD is made, is a bona fide holder of any encumbrance on such property or a bona fide lessee of such property, if the said encumbrance or lease has not been declared void under the proviso to sub-section

(1) and such person is eligible to continue in possession of such property even after the transfer in terms of the aforesaid agreement for transfer.

(3) If any person refuses or fails to comply with the provisions of sub-section (2), the appropriate authority or other person duly authorised by it under that sub-section may take possession of the immovable property and may, for that purpose, use such force as may be necessary.

(4) Notwithstanding anything contained in sub-section (2), the appropriate authority may, for the purpose of taking possession of any property referred to in sub-section (1), requisition the services of any police officer to assist him and it shall be the duty of such officer to comply with such requisition.

(5) For the removal of doubts, it is hereby declared that nothing in this section shall operate to discharge the transferor or any other person (not being the Central Government) from liability in respect of any encumbrances on the property and, notwithstanding anything contained in any other law for the time being in force, such liability may be enforced against the transferor or such other person.

(6) Where an order under sub-section (1) of section 269UD is made in respect of an immovable property, being rights of the nature referred to in sub-clause (ii) of clause (d) of section 269UA, such order shall have the effect of—

(a) vesting such right in the Central Government ; and

(b) placing the Central Government in the same position in relation to such rights as the person in whom such a right would have continued to vest if such order had not been made.

(7) Where any rights in respect of any immovable property, being rights in, or with respect to, any land or any building or part of a building which has been constructed or which is to be constructed, have been vested in the Central Government under sub-section (6), the provisions of sub-sections (1), (2), (3) and (4) shall, so far as may be, have effect as if the references to immovable property therein were references to such land or building or part thereof, as the case may be.

C. AUTHORITIES

The authorities below address the reading down of the 'free from all encumbrances' vesting language and the protection of bona fide possessory interests.

Reading down of 'free from all encumbrances'; bona fide possession protected

C.B. Gautam v. Union of India (1993) 199 ITR 530 / 110 CTR 179 / 65 Taxman 440 / (1993) 1 SCC 78 (SC)

Court / Bench Supreme Court of India; decided 17 November 1992 (test case transferred from the Delhi High Court).

Issue Constitutional validity of Chapter XX-C, and whether a pre-emptive purchase order under section 269UD can be made without affording the parties a hearing and without recording reasons.

Held The Chapter was upheld in substance, but the Court read into it the principles of natural justice: a reasonable opportunity to show cause must be given to the intending purchaser and seller before an order under section 269UD is made, and the order must record reasons. Pre-emptive purchase can be resorted to only where there is significant undervaluation of about 15 per cent or more, raising a rebuttable presumption of an attempt to evade tax. The words 'free from all encumbrances' in section 269UE(1) were read down so as not to defeat bona fide tenants and encumbrancers in possession.

Relevance The foundational decision for the entire Chapter. It governs sections 269UA, 269UC, 269UD, 269UE and 269UF and is the source of the hearing-and-reasons discipline applied throughout. (Followed Kraipak v. UOI AIR 1970 SC 150 and Olga Tellis v. Bombay Municipal Corpn. (1985) Suppl. 2 SCR 51.)

Vesting, tenancy and the fate of a purchase order

Union of India v. Shatabadi Trading & Investment (P) Ltd. (2001) 251 ITR 93 / (2001) 6 SCC 748 (SC)

Court / Bench Supreme Court of India (S. Rajendra Babu and K.G. Balakrishnan JJ.); decided 10 August 2001.

Held Examined the consequences of a pre-emptive purchase order set aside in the light of C.B. Gautam, and the position of property subject to tenancy; clarified the working of the no-objection/registration machinery and the obligations flowing from section 269UL when a purchase order does not survive.

Relevance Supreme Court authority on the section 269UL no-objection-certificate / registration scheme and the restoration of parties' rights where a purchase order fails.

Prima Realty v. Union of India (1997) 223 ITR 655 / (1996) 11 SCC 65 / AIR 1997 SC ... (SC)

Court / Bench Supreme Court of India (J.S. Verma and B.N. Kirpal JJ.); decided 18 November 1996.

Issue Whether tender of the consideration by a cheque drawn in favour of a wrongly named payee ('Prime Reality Ltd.' instead of the firm 'Prima Realty') was a valid tender under section 269UG(1).

Held Misdescription of the payee amounted to tender to a different legal entity; there was no valid tender within the prescribed period under section 269UG(1). Consequently the purchase order stood abrogated under section 269UH(1) and the property re-vested in the transferor, with consequential reliefs.

Relevance The leading decision on sections 269UG (manner and timing of tender/deposit) and 269UH (automatic re-vesting on failure to tender or deposit within time). Compliance with section 269UG is strict.